The Law of Supply and Demand If trade is to take place, at least two economic units must be involved (business, households, tradesmen, etc. ): One must have something to sell and the other must desire the product of the seller. These two economic units meet or communicate through what is called a 'market'. Markets can be physical places such as the farmers' market in large cities, the commodity markets in Chicago, or the stock exchanges of New York City. They can also be nothing more than a 'happening' where buyer and seller never meet but may communicate halfway around the world by telephone, radio, etc. We will view a market as being some combination of buyers (demanders) and sellers (suppliers), which deals with a definable commodity. Notice, we have already split the concept of market into two subgroups -- demanders and suppliers. To see how markets operate, we will first develop tile demand and supply ideas separately then we will combine them. Price of the Demanded Goods Every one of you is familiar with the concept of demand, although you may not be aware of the fact. To analyze demand, we merely look at all the things that affect people's desires for goods and services. What are some of these things? If we talking about economic goods it is implied that to get a piece of goods, something else (such as money or some other goods) must be given up. The amount that must be given up per unit of the desired goods is the price of the desired goods -- $ 8.00 per book or I shirt per book. Thus it can be said that the quantity demanded of some goods depends partly on the price of that goods. Prices of Substitute and Complementary Goods Many goods are consumed or used either instead of or along with some other goods. In other words, there may be substitutes for or complements to some god&. Examples of substitutes include butter and margarine(人造黄油). automobile transportation and airline transportation, university training and technical school training. Notice, a substitute docs not have to be the same goods, and in fact, substitute implies that it may nit have to be the same goods. Nickels and dimes, in the proper portions, are perfect substitutes in most cases, but they are very imperfect if one has only nickels, the coffce machine takes only dimes, and nobody's around to make change. Complements are found in such items as tires and automobile, sails and sailboats, etc. As you may have guessed, the prices of these related goods will undoubtedly affect the quantity demanded of the desired goods in question. Much as I dislike margarine (and I can tell the difference), if the price of butter goes much higher (relative to margarine), I can assure you, margarine will be much more acceptable to me. Notice, as the price of a given goods becomes higher in relation to its substitute ( or the price of substitute becomes lower), the quantity demanded of the given goods will decrease. The converse is true for complementary goods. If the price of automobiles increases substantially my demand for automobile tires will decrease, since I will be buying fewer automobiles on which to use the tires. While the example may not be very important for me as individual buyer of automobiles, it is very important if one looks at the total market including all buyers of automobiles and automobile tires. The Income of Potential Buyers A third item that can affect the quantity demanded of goods is the income of the buyer or buyers. At first thought, one would think that people with high incomes would demand more goods than those with low incomes. For some goods (economists call them 'normal or superior' goods), this is true for example, the quantity demanded of Rolls Royce automobiles. But for other goods ('inferior' goods) such as pork and beans, the opposite is true. For the latter category, increasing incomes give people the choice of selecting more expensive foods, such as